Written by Shari R. Pogach, Regulatory Paralegal
Last week, the Consumer Financial Protection Bureau (CFPB) filed a complaint in federal district court against RPM Mortgage, Inc. (RPM), a residential-mortgage lender headquartered in California, and its CEO, Erwin Robert Hirt for violations of the Loan Originator Compensation Rule and the Consumer Financial Protection Act (CFPA). According to the complaint, in April 2011, RPM instituted a compensation plan that gave loan officers financial incentives to steer consumers into higher-rate mortgage loans. RPM’s loan officers were given different forms of compensation that were derived in part from the interest rates of the loans they closed.
The interest-rate-based compensation was filtered through “employee-expense accounts.” RPM deposited profits that were directly tied to an originator’s closed loans interest rates into an expense account set up for the originator. RPM then used the expense accounts to pay bonuses and higher commissions. From April 2011 through December 2013, the company also allowed loan officers to use their employee expense accounts to offset interest-rate reductions or credits for RESPA-tolerance cures or appraisal costs they sometimes granted to avoid losing loans to a competitor. This “point bank” arrangement allowed loan originators to “bank” profits extracted from certain consumers that enabled them to close on and receive additional compensation from loans to future consumers. In 2011, RPM paid millions of dollars in periodic bonuses to its loan officers from their employee-expense accounts. All told, RPM paid or financed millions of dollars in unlawful bonuses, pricing concessions and supplemental commissions.
According to the CFPB, RPM’s CEO Erwin Robert Hirt was responsible for managing the design and implementation of this illegal compensation plan. From April 2011 through December 2013, Mr. Hirt managed the design and implementation of RPM’s expense-account plan that allowed the company’s loan officers to withdraw expense-account funds derived from the interest rates those loan officers charged consumers. Further, from January 2012 through December 2013, he managed the design and implementation of the company’s expense-account plan that allowed its loan officers to reset their commission rates on future loans and withdraw funds from their expense accounts to cover resulting deficiencies.
If entered by the court, the CFPB’s proposed consent order would require RPM and Mr. Hirt to comply with the Loan Originator Compensation Rule and the CFPA and to the following: 1) RPM will pay $18 million in redress to consumers affected by its unlawful compensation practices; 2) RPM and Mr. Hirt will each pay $1 million to the CFPB’s Civil Penalty Fund; and 3) RPM and Mr. Hirt will submit to five-year reporting requirements and to compliance monitoring.